Managing intercompany transactions is one of the biggest challenges impacting finance departments. Intercompany transactions are transactions between two or more related internal legal entities with common control (i.e., in the same enterprise). Modern corporations engage in a huge number of transactions between the different legal entities within a corporate group, and while these transactions should be included in the financial statements for each affected entity, they should not be included in the financial statements for the corporate group overall, since for the corporate group they would be considered self-dealing. Therefore, a corporate group has to periodically eliminate such transactions.
One challenge arises because each legal entity that is party to an intercompany transaction typically records its half of the transaction independently of the other entity. If there are any differences in the way the two (or more) entities record the transaction, it can be very difficult to properly match and eliminate the transactions. This is especially problematic because this elimination process typically happens while a corporate group is trying to close the quarter or fiscal year, and holdups to the close process are to be avoided at nearly all cost.
Further, most legal entities in a corporation manage their business, including their financial information, autonomously. Corporate-level financial information typically only comes together at discrete time intervals, such as month-end, through a fairly complicated consolidation process. Many companies perform the consolidation process “manually” by exporting data from various systems to a spreadsheet. However, the emergence of Business Intelligence systems that give executives a daily snapshot on a “dashboard” of the state of the overall corporate business require more frequent updates of corporate-level information. Known Business Intelligent systems that give daily information do not rely on consolidated data and therefore do not generate accurate data. Instead, they merely generate an estimate of current financial activity.